Crude oil prices surged on Monday due to the recent attack by Hamas in Israel, meanwhile, the overall impact is expected to be minimal unless the conflict escalates further, energy experts said.
Brokerage firm Nomura expects that due to geopolitical events, countries like India and the Philippines, which heavily rely on oil imports, may face challenges if oil prices surge.
However, if the conflict remains contained, Nomura sees it as a potential buying opportunity for Indian stocks due to a strong structural outlook. They recently upgraded their rating on Indian equities to Overweight. During this period of geopolitical uncertainty, Nomura believes that oil/energy-related and telecom stocks may perform relatively well.
Vandana Hari, CEO of Vanda Insights, said the possibility of a short-term surge in crude prices. Hari mentioned that there will be a risk premium initially, until the market is convinced that the event won't disrupt Middle East oil and gas supplies. Brent crude opened 5 percent higher at $87 a barrel.
Read: Oil jumps as Hamas’ attack on Israel fans Middle East tensions
Iman Nasseri from Facts Global Energy stated that the impact on oil prices would remain limited unless the conflict escalates into a regional war involving the US, Iran, and other supporters.
Pierre Andurand, a French businessman and hedge fund manager, also noted that since the Levant isn't a major oil-producing region, short-term oil supply is unlikely to be affected. However, he suggested it could eventually impact supply and prices, particularly as global oil inventories are low and OPEC (Saudi Arabia) and Russia have reduced production, possibly leading to more inventory reductions in the coming months. Andurand even predicted that the market might need more Saudi supply if Brent crude prices exceed $110.
Deven Choksey, MD, KRChoksey Holdings under the knee-jerk reaction to this attack prices may go up by 10-12 percent in the near term.
Analysts suggest that the U.S. supports Israel and may tap into its oil reserves if prices rise significantly to combat inflation and prevent Russia from benefiting. Additionally, it's noted that Trump could gain political advantage before the 2024 U.S. elections if Biden can't manage this situation. Israel may respond aggressively in Gaza to regain control.
"Given this economics, it is unlikely that oil prices would’ve stayed at elevated levels, beyond the short term. Markets will react, however, it remains to be seen how far it takes for Israel to attack Hamas, given the fact that Israel intelligence failed in detecting such a major attack on Saturday…", Choksey added.
Read: Hamas opens another geopolitical front in the Middle East
Ed Yardeni of Yardeni Research on CNBC-TV18 emphasized that financial markets tend to react quickly to high oil prices. He mentioned that the geopolitical situation is currently unpredictable, and caution is the prudent approach. Given India's status as an oil importer, he advised monitoring oil prices during the conflict, with $90-$95 per barrel potentially leading to demand reduction. Yardeni noted that market reactions have not been as severe as expected, with Dow Futures down only 200 points.
Yardeni expressed optimism that this situation will eventually stabilize for India and suggested that the Federal Reserve should be cautious not to push things too far, considering the substantial rise in bond yields, with the 10-year yield at approximately 5 percent in the US, which he deemed a concerning development.
Hamas militants infiltrated Israel by land, sea, and air, launching rockets from Gaza. Israeli Prime Minister Netanyahu initiated an offensive, with civilian abductions and casualties reported. Israel also cut off supplies to 2.3 million Palestinians.
So far, over 250 Israelis are casualties, with 320 in serious condition, and 256 Palestinian deaths, 1,790 injuries in Gaza (per NBC News & Palestinian Health Ministry). Though not major oil producers, analysts warn the conflict, near key oil areas, could escalate. Israel has two refineries (300,000 bpd capacity) but little crude production, while Palestinian territories lack oil production (per EIA).
(CNBC contributed to this story)
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